Stocks in traditional car makers trade for terrible price-to-earnings ratios. Shares of electric vehicle makers trade for big valuation multiples. One traditional auto maker believes there is an opportunity in that setup.
Renault
(ticker: RNO.France) is planning to sell stock in its EV business called Ampere. The IPO is slated for the first half of 2024.
Ford Motor
(F) and
General Motors
(GM) investors will be paying close attention to see how it goes.
In preparation
Renault
hosted an investor event on Wednesday, where it outlined several key goals including reducing the cost of making EVs by 40%—most of that will come from batteries and the electric powertrain. Cost reductions help enable two other goals: a break-even operating profit margin in 2025 and a double-digit operating profit margin in 2031.
The event was impressive, wrote Bernstein analyst Daniel Roeska in a Wednesday evening report, while adding: “What’s the point?” He isn’t convinced an IPO is necessary.
“We continue to question the decision to fund Ampere through equity alone, taking on no debt, and even more so the need to go ahead with the IPO when CFO was keen to point out that Renault has ample cash to fund this anyway,” wrote Roeska. “We did not gain clarity why Renault is unable to fund Ampere out of its own cash flow.”
Where the money comes from might be beside the point. Renault stock trades for 2.7 times estimated 2024 earnings. That is, frankly, a terrible valuation multiple that shows investors are worried about growth and profitability in the future.
EV stocks don’t trade for those types of multiples.
Tesla
(TSLA) trades for about 62 times estimated 2024 earnings. Chinese EV leader
BYD
(BYDDY) trades for about 17 times.
Those two are profitable. Ampere isn’t expected to be profitable until later in the decade.
Polestar Automotive
(PSNY) is a useful comparison. It has its roots in Volvo and its parent company Geely. The company, including debt, is valued at about $6 billion.
Renault is selling battery-electric vehicles at a rate of about 250,000 a year. Polestar is selling about 60,000 units. On a per-car basis, Ampere could be worth $25 billion. Renault’s entire market capitalization is about $11 billion.
That’s probably the best reason for an Ampere IPO—to unlock some hidden value.
It’s also far more efficient to sell stock in the EV maker. Raising $5 billion in Renault stock would mean increasing the share count by about 50%. Raising $5 billion in Ampere might require selling just 20% to outside investors.
Ford and GM shares trade at roughly six times and four times estimated 2024 earnings, respectively.
Those valuations don’t reflect a lot of EV potential. GM also owns about 80% of autonomous driving company Cruise. It competes with the likes of Waymo and
Tesla,
trying to bring robotaxis to the masses. There isn’t a lot of value for Cruise reflected in GM stock, either.
Ford and GM shares were both down a little in premarket trading Thursday.
S&P 500
and
Dow Jones Industrial Average
futures were both down about 0.2%.
Write to Al Root at [email protected]
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